AdvisorShares Weekly Market Review – Week Ending 5/5/2017

Highlights of the Prior Week

This One Goes To 11

Macro

The not most important jobs report of the year came in on Friday was strong showing 211,000 new jobs well above the 185,000 that was expected, the headline unemployment rate printed at 4.4% which is lower than it has been in ten years, wages up ticked by 0.3%, the labor force participation rate fell to 62.9% and the U6 measure of unemployment fell to a 9.5 year low at 8.6%.

The Federal Open Market Committee met last week and true to market pricing, it did not raise rates but continued the rhetoric for a hike in June and then one more later in the year. The jobs strength seems to support the telegraphed policy implications even if the GDP report from the previous week did not.

On the political front the House passed a first draft to repeal the ACA in favor of the AHCA (obviously we’re talking about health care). At first glance the new legislation is just as polarizing as the old legislation. Just like the first time around when there were Dems who voted for ACA without reading, there were GOP members who voted for AHCA without having read it. The early read is that the current draft will be revised substantially by the Senate.

Whatever anyone thought of the week’s events, domestic equity markets had no problems with any of it closing at or near all-time highs. The Dow Jones Industrial Average was up 0.31% above 21,000, the S&P was up 0.63% to close at a new high, the NASDAQ added 0.87% to close above 6100 and the Russell 2000 was the only decliner on the week, giving up 0.25%.

Bespoke Investment Group led their weekly report with a discussion of how low the VIX is. It spent a little time below 10 on Monday and then again on Friday. Bespoke notes that since 1992, there have only been 20 days that it’s been below 10. There are several ways to interpret this. The more common approach is to view it as a contrarian index whereby a low VIX should be taken as a warning for a complacency-led decline. The less common take on this is that the level of the VIX doesn’t matter so much as the direction. It has been low for many months save for very short terms spikes now and then, has continued to work lower while equities have been grinding higher. It is less productive at this point to guess what comes next as opposed to taking the opportunity to remind clients that volatility will increase at some point and with an increase in volatility comes the threat of increased emotions and it is at times of heightened emotions when the worst decisions are made.

The yield on the Ten Year US Treasury Note moved up seven basis points on the week to 2.35% in something of a curve steepening trend perhaps as the market digests a balance sheet shrinking coming, albeit slowly, from the Fed. In this week’s AdvisorShares Alpha Call, Ryan O’Malley from Sage Advisory Services noted the importance of the slope of the yield curve and his belief that the Fed will do all that it can to try to prevent the curve from inverting.

West Texas Intermediate Crude was beaten like a rented mule last week, falling 5.5% which includes a 2% rally on Friday. Not much has changed fundamentally, there are ongoing concerns about the sustainability of OPEC production cuts of course but for now it simply remains toward the bottom of its recent trading range.

The populist candidate, Marine Le Pen, lost the French election. A couple of months ago a populist lost in the Netherlands and a few months ago populism lost in Austria. Populism won a year ago in the UK by virtue of the Brexit vote and in the US in November. Maybe the trend is now fading and the world can get back to freer trade. The market reactions to the French election as of 30 minute before the US equity open are the that the CAC 40 is down 96 basis points, the yield on the French OAT is down one basis point and the euro is down 0.50% against the US dollar.

ETF News

Not quite 11 but the SEC has approved 4X levered ETFs from ForceShares, one of which will track the broad market and the other will offer inverse exposure. Bloomberg TV had a little fun with these funds, sharing some humorous Tweets including one that proposed the symbol “METH” for them. Some will say these are tools for speculation and should not exist and while the typical investor is unlikely to need such exposure we do think the market should determine whether there is or is not an audience for these funds.

ETF inflows for April have reported and consistent with the huge growth in the first quarter, April was huge, bringing in $34.7 billion which is more than double the gain from April, 2016.

Even a six-figure salary doesn’t cut the mustard in San Francisco, Marin and San Mateo counties. A family of four there earning $105,350 or lessnow is considered low income, HUD figures show. Orange County income limits for a family of four exceed Philadelphia’s ($66,550), Seattle’s ($72,000), Los Angeles County’s ($72,100), San Diego’s ($72,750) and Boston’s ($78,150).

Sports

As LaVar Ball continues to meddle in his son Lonzo’s affairs, Stephon Marbury offers insight in The Undefeated which sums up the problem very succinctly;

ESPN.com reported that an endorsement deal for former UCLA star guard Lonzo Ball, considered a top-five NBA draft prospect, is not expected with American shoe powers Nike, Under Armour or Adidas because of the demands from his family.

As for the sectors of the S&P 500, four outperformed the broad benchmark – Technology, Financials, Industrials, and Materials. The remaining seven – Healthcare, Real Estate, Utilities, Discretionary, Staples, Energy, and Telecom – each underperformed. The dispersion between the top-performing and bottom-performing sectors was roughly 2.57% for the week ending 5/5/17, with Technology outperforming all, and Telecom coming in last.

The AlphaBaskets blog provides frequent market insight and commentary by AdvisorShares Investments, LLC, created by AdvisorShares and other leading active managers. AdvisorShares Investments is an SEC-registered investment adviser and the investment adviser to the AdvisorShares actively managed ETFs. The views expressed on AlphaBaskets should not be taken as investment advice or a recommendation for any of the actively managed ETFs advised by AdvisorShares.